June 1, 2016; Will Yellen Finally Raise the Interest Rate?

The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick


“Options are closing off, and pressure is building. And in a moment of crisis, people or nations will do what they wouldn’t ordinarily do because of the pressure. So, global debt to GDP at 210%, moving to 240%, at a certain point you have the global elite which say, “Here is a problem, and we can solve it for you. But here are the conditions.”

– David McAlvany


Kevin: It sure seems, Dave, that the markets, at least, are expecting Janet Yellen to expect that the economy is getting better. Look at gold over the last couple of weeks.

David: You are seeing also a rotation from your safe haven stocks to your smaller cap stocks where, again, you would say, people are assuming that they can take a little bit more risk, they are moving into economically sensitive areas, and I personally think that’s disastrous.

Kevin: But they’re buying the recovery, in a way, or at least the perception of recovery from the Fed’s point of view.

David: That’s right. Either that or you’re looking at short covering which is, again, not real buying of those shares, but buying back a short position. And that may well be people covering shorts ahead of whatever volatility, up or down, is caused by what is done by the Fed in June. But of particular interest is watching some of the bond gurus, whether it is Jeffrey Gundlach or Bill Gross, who have built careers being long bond market, that is owning bonds. As interest rates have been falling for the last 20 or 30 years, the price of bonds has gone up, and to call it a no-brainer investment, I think, would inadequately strip away the intellect of most bond investors who are mathematically highly capable, very quantitatively inclined.

Kevin: But they have no home right now. Where do they go now?

David: Well, except on the short side, and I think Gross this last week suggesting that he is trying to figure out how to be short the bond market, which goes against his ingrained bias to own bonds, is saying something, I think, very interesting.

Kevin: That’s like McDonald’s shorting hamburgers, saying, “We’re going to try to make money on people not wanting to eat hamburgers.”

David: That’s exactly right. There are some interesting shifts as we come into the June announcement by the Fed which will either be news of a 25 basis point increase or lack thereof. But very interesting to me, very curious, is an increase in the Dow and the S&P, without a whole lot of volume. When I contrast where we began the year with a high volume decline in the indices, and now a low volume increase in the indices, it is not convincing to me that we have a sustainable long-term growth trend in the equity markets. For there to be a real reversal in equities you generally want to see stronger levels of volume, that is, greater participation as you see a recovery in price, and if there are very low levels of participation as you see an increase in price, then actually you should be suspect of what happens next.

Kevin: It’s a signal to move, possibly, the other direction. Let’s just look at global debt-to-GDP. If we’re going to be talking about whether we are in a growth model right now or whether we are in a shrinking model, back in 2007/2008, Dave, when we started this program, actually, we were talking about the debt problem as it was building at that time. That turned into the global financial crisis. That turned into a huge crisis. Our debt-to-GDP is higher now, not lower, than when that washout occurred.

David: That’s true of the United States. That’s true of Europe, that’s true of Britain, that’s true of Japan, and by the time we add up the G7 and G20 you find that, actually, it’s true of global debt-to-GDP, which was 210%, if you’re counting the entire world economy.

Kevin: Back in 2007 and 2008.

David: That’s right. The total stock of debt, and this is government debt, of course, only government debt, was 210% prior to the collapse of Leman and it’s grown to 240% at present. So the worries are abating because amongst academics and officials, it is very affordable.

Kevin: Sure, negative interest rates make things affordable.

David: That’s exactly right. We, in our view, may not have enough income to service the old stock of debt, but on new and cheaper terms, it is argued, we can certainly do so. So you have central banks which have lowered interest rates, on average. This is fascinating. According to the Financial Times, May 26th, “Central banks have lowered interest rates, on average, one out of every three days since 2008.”

Kevin: (laughs) That’s hard to do. Don’t you run right toward zero and then you run out of interest?

David: And then you run into negative territory. So it is not surprising that the interest cost of debt has fallen to 7% of global GDP. And that is still a very large number. If you’re counting global GDP and saying 7% of that is going just to pay the interest meter, it was 11% at peak in 2008, which is not an excuse, I think, to be at ease. To my mind, it suggests that in crisis central banks do not control the rate of interest and therefore, as the market starts demanding greater interest payments as response to a credit risk, as a response to maturity risk, as a response to global financial instability, you’re going to be dealing with a larger base of debt. And with a larger base of debt and higher interest rates, which the central banks cannot control indefinitely, you’re looking at a radical increase in systemic risk.

Kevin: Sooner or later the market does speak. Remember the days when you used to pay somebody to borrow. If I needed to borrow on a house I paid the bank a certain amount of interest over a certain period of time. At this point, the borrowers, Dave, are being paid to borrow. That’s what negative interest rates are. Of course, the costs and the terms are lower, but like you talked about last week in the program, we’re allowing debt to overwhelm us because this is an anomaly, this is not the norm.

David: And it’s creating behaviors which aren’t particularly healthy. To give you an example, Bayer is in the process of buying Monsanto, the big seed company, and it appears that the ECB bond-buying program will be a part of the funding tool for Bayer to be able to buy Monsanto. Central bank financed purchasing of an overseas company. That is incredibly unhealthy. But again, these kinds of things happen in a low interest rate environment. And the point is, what works today in terms of a debt configuration, it works today because of a particular set of circumstances, and those circumstances are not constant, and they are ultimately not controllable by central planners. So we assume that we have interest costs in the range of 7% of global GDP and somehow that gives us carte blanche to live as we want, spend as we want, promise as we want, and it neglects this point, that the interest expense is variable. And we’re pressing the lower limits of that right now.

Kevin: It’s fascinating to me where people allow for the thought process to even exist that the Federal Reserve controls interest rates. They have taught us that, and yet we’re waiting for the next meeting, and will Janet Yellen raise rates? But as you know, the market is the one who normally determines rates. If we were to look at thousands of years of human history, the market sets the rate. It is the cost of risk of borrowing.

David: Other than the overnight lending rate, other than the Fed fund rate, the Fed is not in control. It is the market which determines everything as you go out on the yield curve from day ten forward. And what is perhaps even more disconcerting than the mountains of debt that exist today are the dispositions of politicians to play favorites with debt forgiveness. You have Sanders who wants to make education free for all, and forgive student loans. You have Trump who will default on existing creditors as if that won’t have implications for future generations or the way that we do business, being a debt-addicted culture. You have Clinton who will take more of the interest income from the public via an increase in income tax. These are all the political responses which are inherently disturbing to the marketplace, and they look like a change of rules in the middle of the game, which I think set us up for 2016 being the slide into a disastrous year, 2017 and 2018 for our debt markets.

Kevin: I’d like to go back to that negative yielding rate because it’s just so hard to get our heads around. We’re not talking about small negative rates in certain regions of the country or the world, we’re talking about trillions of dollars.

David: I think we recently said seven trillion of debt was negatively yielding. According to Fitch, the rating agency, they count 9.9 trillion of negative yielding bonds. And when you’re talking about negative yielding bonds, you’re talking about something that is bad for savers, bad for pensions, bad for insurance fund managers, but good for governments because it’s subsidizing their spending habits.

And that excess spending – what is it, really, but political promises using, in theory, something that is an unlimited resource? But it is on the back of a resource base which is actually limited. We can theoretically imagine a world where paper promises have no limits, but there are limits, not only to the creation of credit, but the creation of dollars, and any time you pretend otherwise, that’s when you end up with a real crisis of confidence, whether it is a debt panic, or a currency crisis, or what have you.

Kevin: The thing that makes our particular system different than years ago, years ago a debt instrument was a debt instrument, and currency was what you bought it with. These days our currency is the debt instrument. It’s completely reliant on that. And so, unless you have something like gold, when this thing does go default, it’s not just your bond that goes default, it’s the currency that bought the bond.

David: Right. So, if there is a list of reasons why gold makes sense in the coming years, I think infinite credit creation might be on top of the list, and the actions which lead, eventually, to a very common sense reappraisal by the man in the street of our fiscal policies, of our monetary policies, what will be a common response is a no confidence vote, and a radical reappraisal of reality, shifting from short-term policy fixes, credit creation, to something that hopefully is more long-term sustainable.

Kevin: Talk about sustainability, there were three pillars that supported the dollar after World War II. Pillar number one was, the Western World accepted the U.S. dollar as a reserve currency. That was pillar number one. They had to have it. They could only trade in certain items with U.S. dollars. The second pillar, of course, was the gold standard. That’s why the first pillar came into place. The gold standard guaranteed the countries that accepted the dollar as the reserve currency, that was the same thing has having gold.

The third pillar is a little more subtle. It was worked out with the Saudi royal family in the mid 1940s between FDR and the Saudi royal family. We’re seeing a shift there, Dave. Of course, we still have the reserve currency status for now. We don’t have the gold pillar, so the second pillar is no longer there. The third pillar, the petro-dollar, the agreement between the Saudi royal family and the United States to make sure that oil was always denominated in dollars, we’re starting to see a weakness in the Saudi hold, and actually, our policies toward Saudi Arabia.

David: This goes back a couple of months when we started talking about the Obama administration altering their disposition toward the Saudis. Certainly, a part of the nuclear agreement with Iran, which is disturbing to almost everyone in the Middle East except the Persians, and perhaps those in D.C., but since the nuclear agreement was reached with Tehran four months ago, there have been major shifts in the Middle East to counter Iran’s new access to the global markets. And so you see the Saudis doing things which I think they are doing of necessity. They have signed major deals with Jordan, had the Jordanian ambassador recalled from Iran, or once that happened they signed multi-billion dollar deals with the Jordanian government. You have seen the Saudis scrap major deals with Lebanon – these are arms deals – convinced that providing arms to Lebanon would really be just a pass-through to those in Lebanon who are actually backed by Tehran.

Kevin: You are talking about Hezbollah.

David: That’s right. What are they doing? They’re trying to make life as difficult as possible for the Iranians from an economic standpoint, and even something as simple as saying, “Look, your national airline can’t fly through Saudi airspace.” They’re doing everything they can to create a blocking move to say, we will do what we can to make sure that your economy continues to suffer.

Kevin: Next week, Dave, we’re going to be talking to Richard Maybury. He brings some light to why some of these tensions actually exist. A lot of times it just has to do with tribal dividing lines and Western world dividing lines not matching up.

David: There are a number of issues in play. Certainly, there is the desire for many in the Middle East to reverse what was decades ago an arbitrary regional division, what was called the Asia Minor agreement, which we now know as Sykes-Picot. It divided up all of the post Ottoman Empire into lands that would be under the jurisdiction of the British, under the French, under the Russians, and again, that’s what we know as Sykes-Picot. You have the folks who are running the “New Caliphate” and they have this sense – it’s almost like Manifest Destiny – “Our kingdom knows no boundaries. Anyone who tries to put boundaries on us is automatically an enemy whom we will set out to kill, even if they are Muslim, they have fallen prey to the deceit and lies of the West and of the Great Satan because the Kingdom, the Caliphate, has no boundaries. It is a spiritual kingdom which knows no boundaries.

Kevin: Before we get into the tribal differences, let’s just look at these boundaries from our point of view, Dave. We live in Southwest Colorado. Some of the land is reservation land and some of it is in the state, yet we don’t necessarily think on a daily basis when we’re on the reservation and when we’re not on the reservation.

David: No, there are only a few clear places where you can go and there is a fence. Otherwise, there is no fence, there is no boundary.

Kevin: So you have two sets of boundaries, and they are looked at by two separate types of people. Even though we’re all Americans, there is a division there, and a lack of recognition.

David: There is another thing. Not only with Sykes-Picot and that agreement. Is it the desire of ISIS or ISIL to dismantle it? But at that foundational religious level, you also have the 15 versus the 85, and that is the minority Shi’a population which globally accounts for about 15% of the Muslim population, and the 85% which is Sunni, and if you think about that 15%, you are really talking about Persia. You’re talking about Iran, which is the largest concentrated population of Shi’a.

Kevin: They may be 15%, but they are working toward a nuclear answer.

David: Then you have the 85%, which is the Sunni population that includes the Arabian Peninsula and the Wahabi version of the Sunnis, and if there is such a thing as a more radical expression of Wahabism, you have it in ISIS and ISIL. In Iran, you look at this 2500-year-old society that was deliberately undermined by the U.S. president and ultimately by the U.S. State Department, if you go back to the 1970s, in favor of the Saudis, who seemed the more pliable ally.

Kevin: That was when the Shah was deposed.

David: That’s right. So we have the 1940s version of the prioritization of the House of Saud, and in the 1970s, the overthrow of Reza Pahlavi, the Shah of Iran, in favor of someone who had some pretty radical ideas, as it turns out. We actually thought that we could have some influence and control over Khomeini. But the Saudis have this loose history of being nomadic tribesman, roaming the sands, and they had no idea that underneath those sands were vast natural resources of oil. It took British exploration and discovery of the oil fields, and an American drive to control and take away from the British, and our negotiation directly with the Saudis for –what? Yes, for Saudi oil. And we chose them over the Persians decades ago. And yes, we still have this tension between the 15% and the 85%. We have this oscillation in our foreign policy today which is the first time that we’ve had any bit of a shift back in the direction of Iran. And I have to be honest, I have no idea why.

Kevin: It reminds me of what we were talking about with the central banking community. There is a perception that is needing to be maintained to maintain this balance that they say that have as far as interest rates controlling the markets. We have sort of tried to do the same thing with the tensions in the Middle East. That, too, if you want to call them market forces, or human forces, at some point it is going to overtake the control forces.

David: Here is the interesting thing as it relates to the Saudi royal family. They are going to face a real existential threat, and it’s not Iranian. It is ISIS and ISIL, because they are viewed as folks that have been bought off. They are viewed as allies of the Great Satan. And it doesn’t matter if they pray five times a day in the right direction and control two of the Holy cities. It just doesn’t matter. ISIS – they are purists, and they don’t see the folks in Riyadh as particularly pure.

Kevin: Something you have talked about, Dave, in the past, and I think it is fascinating to look at, how warfare has changed over the last century. If you look back at World War I, that was a war that you could sincerely say was fought by machines. It was the Industrial Revolution. Look at World War II, and even more so, we probably peaked with seeing machine versus man when we started to see these wars in the Middle East, both Persian Gulf I and Persian Gulf II. There was no contest. But terrorism, guerrilla warfare, has been around for thousands of years, and this terrorism has risen again, very similar to what we saw several thousand years ago in the Persian Empire, just that mindset. But now the terrorists are not just fighting a guerrilla war. They’re starting to obtain some of the weapons of the old industrial warfare. We’re starting to see mechanized warfare again, from the other side, the guys who were considered just the guerillas.

David: I think we all know what happens when people are put under a tremendous amount of pressure. Behavior does change. And you could even describe it as more desperate. But the notion that we can get through the next five or ten years without considerable chaos in the Middle East, and without a considerable rise in the price of oil – strip away supply and demand fundamentals, strip away over-supply today, lack of demand tomorrow, take away the supply and demand fundamentals. You’re just looking at an event-driven pricing in the oil market. Is that a 2016 event? I don’t think so. But certainly in the next two to three years you see oil take on a life of its own as it reflects the uncertainties of delivery through the Strait of Hormuz, as it reflects changed relationships and unpredictable supplies coming, frankly, not only from the Middle East, Iran, Iraq, Saudi Arabia, but we still have angered the Russians, North Africa, Nigeria. There is a huge swath of the map, all of which are made up by resource-rich countries which we are either at odds with, or are on the outside of these conflict relationships and we don’t how they will be resolved.

Kevin: I’m projecting in my mind now to the future, maybe a future Commentary in two years, three years, and we’ll be talking about this black swan event. We can feel the tension building, just like before a market crash, but you don’t necessarily know what the trigger will be. And so often, Wall Street wills say this, or Washington, or the military, will say, “This is something that we could not have seen coming.” But actually, they could have seen it coming. A black swan event can be predicted, you just can’t predict the name of the black swan.

David: It’s a little bit like saying, “We didn’t see a crash in the stock market coming.” Shiller PE is 26.2.

Kevin: Right.

David: That’s the ten-year rolling average, what is by some called the cyclically-adjusted price earnings multiple, and it is, according to some of our Commentary guests, the most reliable measure of value, because it strips out some of the earnings volatility which are actually created by executives to boost their compensation.

Kevin: So the tension is already there.

David: It’s there, it’s obvious. The Shiller PE says, “Look, you are not going to do well in the stock market over the next five to seven years. You should consider moving to the sidelines.” And yet, by the time people are scrambling to the sidelines in the context of freefall, they’re going to say, “Nobody could have seen this coming.” It’s there. It’s there. What can’t be predicted is the day of panic.

Kevin: You’re saying the same thing with the Middle East and oil.

David: Right. In this context we’re watching what were the global powerhouses, G7, get together, and they can’t organize themselves out of a paper bag. Right now, the conflict between us and Japan over currency manipulation, the concerns over China doing the same, we get together to agree, and all that we can agree on is all the things that we disagree about. So, there is this broad context of discontent, of suspicion, of frankly what makes for all varieties of conflict, even amongst people who are less inclined to throw bombs and put tanks and carrier fleets into the mix.

Kevin: These triggers, as we look at them, we can see the tension building up and a lot of times it is not really exciting to look at the thing that actually may be the trigger. Sometimes you have to look at the details. Like you said a couple of weeks ago, the devil’s in the details. You have to look at the flow of goods between countries, you have to look at some of the subtle things that you would think only an economist would look at, but oftentimes, that becomes the trigger event.

David: Right. Last week durable goods orders climbed 3.4%. That’s a good number. That’s a very good number. When you look at the details, if it wasn’t for aircraft, then your orders numbers, annualized, would have been down 8.7%.

Kevin: Right. Aircraft – that is influenced by government buying.

David: We have commercial aircraft certainly a part of that, but for nonmilitary capital goods, if you exclude aircraft, you’re down an annualized 8.7%. So the biggest component was the durable goods order being boosted 65%, a 65% surge in that commercial aircraft. So, there is one positive element in it, and I don’t want to neglect that. At the same time, it’s not as if corporate America is, on a broad basis, doing better and better. We’ve seen a major contraction in Silicon Valley. What’s your first indication of a contraction in Silicon Valley? My dad used to say, “It’s a recession when they’re closing the Starbucks in someone else’s neighborhood, it’s a depression when they’re closing it in your neighborhood.” And the depression that we see in Silicon Valley is that we’re seeing sales of ping pong tables drop like a stone, which may be incredible irrelevant to you and me because our ping pong game is a little off. But the startup culture of Silicon Valley, where just about every office has a $2500-dollar table – you get used to selling $2500-dollar sets – the distributors of ping pong tables are bleeding. Why? Because something has shifted in Silicon Valley. Nobody’s buying right now. Why are they not buying? Look at tech. Look at the favorites in the tech field and they’re not doing as well. Even when you consider the rebound in the NASDAQ in recent months, they’re not doing as well as they once were. Tesla is still down close to a third off of its peak in 2014, and the bloom is off the rose as Tesla is figuring out that it’s not good enough to make a slick little widget that the rich can afford. But actually, if you’re going to compete in the auto industry, you have to do so with folks who have been doing this for better than 100 years and have figured out, let’s say, efficiencies. And they’re not, shall we say, as subsidized as Tesla is by taxpayer funding.

Kevin: I’m going to be a little surface here, Dave, but there is a listener of ours who does drive one of the Teslas, but not one of the ones that are standard production, but one of the test Teslas. When we were up in Idaho just recently he took me on a ride, and he took his hands off the steering wheel while we were going over a very high bridge that curved, and the car drove itself. Granted, Tesla may be off by a third, but I’ve never experienced anything quite like that – 70 miles an hour, on a bridge, watching the steering wheel do everything by looking at the lines on road.

David: It’s phenomenal, if you can afford it.

Kevin: (laughs) Right, it was an expensive little toy.

David: The reality is, I think what you’re seeing is, the vast majority of people can’t afford a brand new Tesla. Look at the savings rate. The savings rate recently popped to over 5%. Good news or bad news?

Kevin: For the Fed it’s bad news. They don’t want you saving money.

David: For the Fed it’s bad news, but it also indicates to me a certain degree of insecurity. You save versus spend and pay down debt when you’re concerned about perhaps a two-income family losing one of your jobs or both of your jobs. The stress of a pink slip is enough for you to make sure that you have an adequate cushion.

Kevin: That’s been the case in China. Anytime you see insecurity rise, you see savings rise. It’s almost a direct indicator.

David: Speaking of China, it’s not as if they can completely move past the old model of growth. As I get ready to go to a conference in South Africa, some of the folks that I met with from China, economists – very well regarded economists in China – I think they will be there again this year at this conference – and their confidence level in the Silk Road Program, the one belt, one road expansion toward the West, was pretty powerful.

Kevin: Sort of a déjà vu from a thousand years ago.

David: It was, but it speaks to, not the internal consumption model, which everyone has assumed they are moving toward, and away from a mercantilist model, but really, it talks about and deals with the old world mercantilism. They’re just pivoting from moving things to the United States to moving things to Asia Minor and all of Europe and Africa.

Kevin: And making money on every little item that moves from one place to the next.

David: That’s right, controlling the route, which is not just the model that we’ve seen in recent years, 1979 to the present with China, and our relationship with them, but it’s really the same model on steroids, just directed to a different audience, with greater control now that they have the ability to expand their reach beyond this little place – well, it’s a big place on the map – but beyond a regional influence, to something that is an expansion of territory. And if they can expand, not only their distribution territorially, but their right to tax territorially, not because they control as, say, a federal government would, but through tariffs, and through the movement of goods and services, through the movement of oil and natural gas. It’s intriguing. There is bound to be a decent fight with the Chinese, either with the Japanese and those in the region, or with us, because we don’t want them impinging on our global monopoly of power, that is, the role that we’ve played in the post World War II world. So, what they want to do does run into conflict with what we already have as influence in that area.

Kevin: We’ve been the dealer of the cards, and at this point we’re being dealt out of the game, is what you’re saying. China, at this point, is saying, “No, we’ll go ahead and be dealer and player.”

David: But the interesting thing is, there is this current of debt crisis, there is this issue of debt crisis, which may be a catalyst for a major external reorientation. What happens when our government faces a domestic political or economic issue? We usually go to war. And to assume that you have a 30-trillion-dollar ticking time bomb in China and it doesn’t equate to war, I think it may end up being the catalyst that propels the one belt, one road program, no questions asked. “We do what we want when we want. We’re not looking for your signing on the dotted line to say yes to participation. We’re assuming it. And if you don’t like it we’ll shoot you.” I think, as we reflect on where we are today, and where we might be, not only domestically at the end of a four-year period with new leadership, but where we would be ten years from now geopolitically, it seems to me that there is lot that argues for massive tensions and massive conflicts. The conversations we’ve had with Richard Maybury in the past are a little bit like the conversations we’ve also had with Dr. Friedman from STRATFOR. And they tend to look at the world form the 40,0000-foot view. And sometimes, they are writing about things that don’t seem plausible and don’t seem to make sense. And then some of the time, when you look back at the things that they wrote, you think, “How did they see that?” Because from 40,000 feet up, it’s very difficult to get any granularity. You can’t see in detail, and yet, they end of being very prescient, very early, very correct.

Kevin: One of our guests a couple of years ago was a man who wrote the book, The Fourth Turning. We’ve talked about the first turning, the second turning, the third turning. The fourth turning is when you have a major paradigm shift after about a century. We’re looking at a paradigm shift here in America, we’re looking at a worldwide paradigm shift, and usually what you have to do – and this has been part of your goal, Dave, with your family, with our clients, with the listeners – you have to be well trained as you move from a fourth turning to a first turning, or it can go terrible. I think of the American Revolution versus the French Revolution. You could name so many different ways where the ball bounced one direction versus the other and it changed the world for history.

David: That is something I would like to raise with Richard Maybury next week. What is the difference between 1776 and 1796? And what does it take to drive toward one versus the other? If you’re anticipating change, on a national level, you see that with high levels of political discontent here in the United States. On an international level, where there are challenges to U.S. dollar hegemony in the monetary system, and a questioning of, “As the United States, should we have the same role in a post World War II world going forward?” These questions of significant, considerable change. What are we driving for? Do we have a clear idea of the ideals that we would like to see? And if we don’t, does it end up being something of an anarchic free-for-all? It seems to me that reviewing the importance of liberty, the importance of justice for all, the things that were foundational to what started over 200 years ago here in the United States – how do we project that, not necessarily onto the world, but even into our own culture to maintain it in the context of change and crisis.

Kevin: The topic of civics class 50 years ago – everyone had civics 50 years ago – I don’t know, necessarily, that that class is being taught at this point.

David: Kevin, that brings us full circle to the issue. People make sometimes not the best decisions when they are under pressure, and when it comes to finances, you put someone deeply in debt, and then try to get them to make the best rational decisions when they are feeling like that are not going to be able to make ends meet by the end of the month, and you can see people make all kinds of decisions which are detrimental to them, just to fill the gap and get by.

Kevin: It’s hard to have that 40,000-foot view when you’re basically in a corner.

David: Right. And I think this is one of the things that, generationally, or inter-generationally, why my dad has always hated debt, and why I’ve grown up with this notion that, whether it was under Reagan, having a trillion dollars and moving to two trillion dollars was a big deal, and perhaps catastrophic to the United States. What did it present? What is represented to him is this notion that options are closing off, and pressure is building, and in a moment of crisis, people will do things that they shouldn’t do, and wouldn’t ordinarily do.

Kevin: Or nations.

David: Or nations, will do what they wouldn’t ordinarily do because of the pressure. So, global debt-to-GDP at 210%, moving to 240%, at a certain point, you have the global elite which say, “Here is a problem, and we can solve it for you. But here are the conditions.”

Kevin: Debt actually can be translated, Dave, to a lack of liberty, or slavery, even. However you want to put it, if you are deep in debt, the borrower is servant to the lender, which means the lender makes the call.

David: Crisis, if it’s something that the political elite don’t want to allow to pass by, to quote our governor of Chicago.

Kevin: Rahm Emanuel.

David: That’s right. Never let a crisis pass you by. I think to myself, there is a brewing debt crisis, and it’s not only here in the United States, but it’s global, and what does that represent as opportunity, not for you and I as an investor, but what does that represent as opportunities for a global elite who wouldn’t mind a greater degree of control over the system? It’s something that I think we need to be mindful of, and is a part of the reason why I’d like to revisit the conversation with Rick Maybury, because very important to him is this notion of liberty, and what can be preserved through crisis, what can be built on the other side of crisis. What can you actually put in motion today to perhaps create a different outcome – 1776, or 1796?